"When I use a word," Humpty Dumpty said in a rather a scornful tone, "it means just what I choose it to mean – neither more nor less."
"The question is," said Alice, "whether you can make words mean different things."
"The question is," said Humpty Dumpty, "which is to be master – that's all."

Lewis Carroll, Through the Looking Glass, and What Alice Found There (1871)

A recent decision of the D.C. Circuit Court of Appeals in Cohen v. U.S., 2009 U.S. App. LEXIS 17677 (No. 08-5088)(D.C. Cir. Aug. 7, 2009) reaffirms that there is an important distinction between general statements of administrative agency policy and legislative rules. In making this determination, the court will look to the language of the administrative action, as well as its effect; subsequent attempts by agencies to "re-label" their actions as something other than what was originally intended will not stand. The D.C. Circuit's reasoning in the Cohen case could be an indication of the fate of the Federal Communications Commission's 2008 Comcast P2P Order,[1] currently in the midst of its briefing cycle before that same court. I have previously written at some length about the many failings of this decision in an essay,[2] law review article,[3] and most recently in an "amicus curiae" brief to the D.C. Circuit.[4] The law review article and amicus brief together demonstrate that the FCC lacks the "ancillary jurisdiction" (that is, the regulatory authority) it claimed to subsequently enforce its 2005 Internet Policy Statement[5] against Comcast. The Cohen decision is like a looking-glass version of the FCC's Comcast action -- it shows what happens when an agency tries to claim that a prospective binding rule is merely a statement of general policy -- in contrast to the FCC acting as if a policy statement is as binding and enforceable as a rule. Ironically, the FCC later created prospective binding rules of behavior for itself and Internet service providers in the Comcast decision, while disclaiming that it was doing so. Calling Humpty Dumpty!

As the reader will recall, in the Comcast P2P Order the FCC, under former Chairman Martin, claimed that it had the authority to enforce, in an adjudicatory proceeding, the four principles contained in its 2005 Internet Policy Statement. The FCC also claimed that it could simultaneously use the adjudication to announce additional policy principles (prospectively applicable and enforceable against private parties). Neither the fact that the Internet Policy Statement is entitled "Policy Statement," nor that it unambiguously states that "we are not adopting rules in this policy statement" – a view reflected in contemporaneous separate statements of FCC Chairman Martin, other Commissioners and the Wireline Competition Bureau Chief[6] – nor the lack of notice that the agency would subsequently treat the principles contained in the Internet Policy Statement as binding rules, was considered by the FCC an impediment to its enforcement action. These procedural difficulties lie at the core of Comcast's request for appellate review of the decision.

The issue before the D.C. Circuit in Cohen was whether a Notice issued by the Internal Revenue Service establishing a refund process for individual taxpayers seeking to directly recoup from the IRS excise taxes on long distance telecommunications services constituted an un-reviewable statement of IRS policy or a reviewable IRS rule under the Administrative Procedure Act. The excise tax was imposed at the time of the Spanish-American War and by its terms applied only to telephone services charged on a time and distance basis; most consumers today pay only on a time basis. The tax was collected by the service providers as part of their long distance charges. The IRS continued to assess the tax, even after the carriers ceased charging on a time and distance basis and despite a string of losses on the issue in the federal courts.

Finally, in 2006, the IRS issued Notice 2006-50. The Notice was the IRS's first official concession that the taxes were uncollectible, an action that obligated the IRS to make refunds, and it created what appeared to be an exclusive process for individuals seeking to recoup the assessments directly from the IRS (via their federal income tax returns), rather than seek refunds through the service provider. The IRS defended challenges to the new refund process by claiming the Notice was an un-reviewable policy statement that merely stated how the IRS would exercise its discretion to make refunds. Under the APA, general statements of agency policy are not subject to judicial review, whereas binding rules of behavior that constitute final agency actions are reviewable. The D.C. Circuit ruled that the Notice constituted a final agency action – in this case, a binding rule that could be reviewed – that aggrieved taxpayers by hindering their access to the courts.

The test the D.C. Circuit applied to distinguish "a general statement of policy" from a "substantive rule" "turns on whether an agency intends to bind itself to a particular legal position." In applying this test, the court looked first to the language an agency uses when it characterizes its action. In Cohen, the document was entitled a "Notice," and lacked what the court termed the "classic ‘weasel words'" typically found in policy statements through which agencies try to reserve discretion for themselves. The court observed that policy statements typically contain recommended, rather than mandatory, actions and rely on permissive words like "may" rather than mandatory words like "will," which characterize binding rules of behavior.

The D.C. Circuit found that the IRS went beyond a statement of how its discretion would be exercised and promulgated a reviewable, substantive rule dictating the future administration of this type of refund claim. The court found that the IRS' Notice had altered the legal obligations of the agency, the telephone service providers, and the rights and obligations of the affected taxpayers.

Among the IRS' arguments in support of its claim that the Notice was not a rule, but merely a general statement of policy, the IRS had claimed that other statutory options for seeking the refunds remained available to taxpayers, and that they should have been aware that they could use them in lieu of the procedures detailed in the Notice. Significantly, the Notice made clear that taxpayers would not be permitted to seek administrative refunds in any other manner, presenting them with what court termed, "a conundrum." "In reality, unless taxpayers follow the dictates of Notice 2006-05, they run into nothing but dead ends."

Despite the obvious infirmities of these options, the IRS still has the chutzpah to chide taxpayers for failing to intuit that neither the agency's express instructions nor the warning on its forms should be taken seriously. According to the IRS, taxpayers should have realized all the options the Service said were closed to them – using forms that proclaim their inapplicability in bold lettering or filing informal claims that could not be perfected – were nonetheless sufficient to fulfill their administrative refund obligations and to serve as a prerequisite to judicial review. Not hardly. Taxpayers bear a heavy burden when pursuing refund claims, but we have yet to demand clairvoyance.

* * *

In sum, the IRS unlawfully expropriated billions of dollars from taxpayers, conceded the illegitimacy of its actions, and developed a mandatory process as the sole avenue by which the agency would consider refunding its ill-gotten gains. It cannot avoid judicial review of that process by simply designating it a policy statement.

In the Comcast P2P Order, the FCC similarly demanded at least two acts of clairvoyance on the part of Internet service providers like Comcast. Comcast was held to have intuited: (1) that it should disregard the plain language of the Internet Policy Statement proclaiming that it did not create a set of enforceable rules, such that actions could be judged by the policy principles and (2) that by submitting responsive documents in both an enforcement and rulemaking context, it was leaving itself open to (i) having the Internet Policy Statement formally proclaimed enforceable; (ii) having its network management practices judged against the principles contained in the Internet Policy Statement; and (iii) having the agency announce the standard of review that would be applied in such cases and applying it against the company, all in an agency "adjudication" of a non-conforming "Formal Complaint." We can no more demand clairvoyance on the part of our regulated entities than we can of our taxpayers.

Applying the test announced by the D.C. Circuit in Cohen to the FCC's Internet Policy Statement, we can easily see that it is just what it purports to be: an unenforceable, general statement of policy that failed to establish binding constraints on either agency or company actions. The Internet Policy Statement is all of five paragraphs long. The first two paragraphs describe the virtues and value of the Internet for our nations' economic well-being, intellectual development and democratic discourse and cite general statements of policy in two provisions of the Communications Act of 1934, as amended—sections 230(b) and 706(a)—concerning the Internet and advanced telecommunications capabilities. The third paragraph consists of a single sentence: "In this Policy Statement, the Commission offers guidance and insight into its approach to the Internet and broadband that is consistent with these Congressional directives."

The fourth paragraph contains the entire "Discussion" of the FCC's "guidance and insight" on its approach to the Internet and broadband. It recites the FCC's subject matter jurisdiction over the Internet and "information service" providers -- ISPs -- who are not treated as Title II common carriers under the Act and postulates that the agency "has the jurisdiction necessary to ensure that providers of telecommunications for Internet access or Internet Protocol-enabled (IP-Enabled) services are operated in a neutral manner." Accordingly, the FCC adopted what it termed four "principles," that, as written, are in the form of consumer "entitlements." There are no corresponding obligations placed upon ISPs. In a footnote, the principles are expressly made "subject to reasonable network management," which is the total extent of the FCC's guidance on this matter.

The fifth paragraph recites that it is the FCC's "duty to preserve and promote the vibrant and open character of the Internet" and that to foster use of the Internet and ensure that "consumers benefit from innovation that comes from competition, the Commission will incorporate the above principles into its ongoing policymaking activities." At the conclusion of this sentence is a footnote stating categorically: "Accordingly, we are not adopting rules in this policy statement." Several contemporaneous statements of high level agency officials echoed this last point: the principles did not constitute binding and enforceable rules of behavior.

It is apparent that the Internet Policy Statement is just what it purports to be: a general statement of policy for the purpose of providing "guidance and insight" into the thinking of the agency. Although it does not rely heavily on the sorts of agency "weasel words" typically used to retain discretion, it didn't really need to, as it fails to contain a single mandatory constraint on either agency discretion or ISP operations. In other words, in accordance with the Internet Policy Statement, the members of the FCC believe that, in the agency's sole discretion, it may do something. Or it may not. Whatever! The only "obligation" – if one may call it that – contained in the statement is that the FCC "will" continue to make policy by incorporating the principles into its "policymaking activities." It is worth noting that the FCC did not even go so far as to commit to incorporating the principles in its rulemaking activities. Additionally, the Internet Policy Statement created no obligations on the part of ISPs, and therefore created no new and enforceable Internet service subscriber rights.

The Internet Policy Statement is accordingly, in its lack of binding and enforceable commitments, the exact opposite of the IRS' Notice establishing a mandatory administrative excise tax refund process. Having recently found that an administrative agency cannot simply change a substantive rule into a general policy statement just by saying so, it would be surprising if the D.C. Circuit upholds the FCC's belated attempt to change a general policy statement into an enforceable rule.

The Hill recently reported that new FCC Chairman Julius Genachowski has stated "that this FCC will support net neutrality and will enforce any violation of net neutrality principles," and has indicated that the FCC's general counsel is working on the best legal strategy to defend its open Internet principles.[7] Given the myriad jurisdictional and procedural problems with the Comcast P2P Order, the current FCC, under the leadership of Chairman Genachowski, would be well advised to drop any defense of its actions, vacate the Order on its own accord, and initiate a serious inquiry into its jurisdiction and procedures with respect to the Internet and the provision of Internet services. This could be done either as a part of one of the many pending rulemaking or inquiry proceedings begun, but left unresolved, by Chairman Genachowski's predecessors.[8] In the final analysis, I believe the FCC will conclude that the legal justifications and course pursued in the Comcast P2P Order are unsustainable and that Congress has not delegated to it broad authority to regulate the Internet or Internet services. The best legal strategy, accordingly, may very well be for the agency to seek such authority from Congress, should it determine that it needs to act in this area—a proposition subject to great debate. As Chairman Genachowski has stated, "If we don't [have the tools to enforce violations of the FCC's open Internet principles], we will say so." This is a refreshing departure from the past. Let us hope that the new FCC Chairman will approach this very important task in a less Humpty Dumpty-like fashion than his predecessor. Now that would be change we can believe in.

* Barbara Esbin is a Senior Fellow and Director of the Center for Communications and Competition Policy at The Progress & Freedom Foundation. The views expressed in this
report are her own, and are not necessarily the views of the PFF board, fellows
or staff.

6. Kevin Martin, FCC Chairman at the time of the Comcast P2P Order, stated upon the adoption of the 2005 Internet Policy Statement that "policy statements do not establish rules nor are they enforceable documents." News Release, Fed. Commc'ns Comm'n, Chairman Kevin J. Martin Comments on Commission Policy Statement(Aug. 5, 2005). It was widely recognized both at the time of their adoption and subsequently thereafter, that the policy principles contained in the Internet Policy Statement were merely aspirational, and were intended to provide nothing more than "guidance and insight" into the FCC's approach to the Internet. See Internet Policy Statement, supra note 5, ¶ 3. Thomas Navin, then-Wireline Competition Bureau Chief, explained in a press conference immediately following adoption of the Internet Policy Statement that the principles it set forth "are not enforceable." FCC Adopts a Policy Statement Regarding Network Neutrality, Tech L,J., Aug. 5, 2005, availableathttp://www.techlawjournal.com/topstories/2005/20050805.asp. Commissioner Copps, in reference to the Internet Policy Statement, wrote "[w]hile I would have preferred a rule that we could use to bring enforcement action, this is a critical step." In re Appropriate Framework for Broadband Access to the Internet Over Wireline Facilities; Universal Service Obligations of Broadband Providers; Review of Regulatory Requirements for Incumbent LEC Broadband Telecommunications Services; Computer III Further Remand Proceedings: Bell Operating Company Provision of Enhanced Services; 1998 Biennial Regulatory Review—Review of Computer III and ONA Safeguards and Requirements; Conditional Petition of the Verizon Telephone Companies for Forbearance Under 47 U.S.C. § 160(c) with regard to Broadband Services Provided Via Fiber to the Premises; Petition of the Verizon Telephone Companies for Declaratory Ruling or, Alternatively, for Interim Waiver with Regard to Broadband Services Provided via Fiber to the Premises; Consumer Protection in the Broadband Era, Report and Order and Notice of Proposed Rulemaking, 20 F.C.C.R. 14,853, 14,980 (2005) (Copps, Comm'r Concurring)